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Canadian, U.S. markets tumble on jobs data

The energy sector led the Toronto stock market to a lower close today amid disappointing data that showed the U.S. unemployment rate at its highest point since 1983.

By Kristine OwramTHE CANADIAN PRESS

Thu., July 2, 2009

The energy sector led the Toronto stock market to a lower close today amid disappointing data that showed the U.S. unemployment rate at its highest point since 1983.

The S&P/TSX composite index was down 129 points at 10,245.91 as the August crude contract on the New York Mercantile Exchange fell US$2.58 to $66.73 a barrel – its lowest level in a month.

Each of the three major U.S. indices slumped more than two per cent in response to data that showed American employers cut a larger-than-expected 467,000 jobs in June, driving the U.S. unemployment rate up to a 26-year high of 9.5 per cent.

The unemployment rate is seen as a key barometer in the U.S. economic recovery and far exceeded the consensus expectation of 365,000 jobs lost.

ScotiaMcLeod adviser Andrew Pyle described the unemployment rate's slow climb towards 10 per cent as "death by a thousand cuts," but said the data wasn't as bad as it could have been.

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However, Pyle pointed out that the average work week fell by one-tenth of an hour to 33 hours, eliminating the equivalent of another 100,000 positions.

The Dow Jones industrial average lost 223.32 points to 8,280.74.

The Nasdaq composite index gave up 49.20 points to close at 1,796.52 while the S&P 500 fell 26.91 points to 896.42.

U.S. markets will be closed Friday in observance of the Independence Day holiday.

The reaction to the joblessness numbers shows investors are ``skittish" and may be rethinking earlier sentiments that sent markets soaring as the economy showed small signs of improvement in the spring, said Kate Warne, Canadian markets specialist at Edward Jones in St. Louis.

"The market's really been swinging emotionally. There's little bits of good news and investors are taking that as a sign of all-clear, and then there's a little bit of bad news and they take that as a sign that the worst is going to happen," Warne said in an interview.

"What investors need to remember is this is what happens at these times. This isn't unusual – whenever we're at turning points in the economy, they always take longer and they're much more erratic than people would like."

The jobless numbers in the U.S. came on the heels of an awful employment picture in Europe.

Unemployment in the 16 countries that use the euro spiked to a ten-year high in May. The seasonally adjusted unemployment rate for the euro zone in May stood at 9.5 per cent.

In other U.S. data, factory orders for May increased 1.2 per cent, slightly higher than the expected 0.9 per cent. However, orders still remained about 20 per cent below where they were in May 2008.

In Toronto, the energy sector fell 4.1 per cent as the price of crude declined for the fifth straight day.

High unemployment has destroyed demand for energy on numerous levels. Employees who have lost jobs or are in fear of losing jobs are driving less and buying fewer goods, many of them petroleum based. Factories have also curbed production and are using less natural gas and electricity.

Suncor Energy Inc. (TSX: SU) lost $2.21 or 6.3 per cent to $33.16 while its merger partner Petro-Canada (TSX: PCA) fell $2.94 or 6.5 per cent to $41.98.

The loonie gained 0.06 of a cent to 86.04 cents US.

The TSX Venture Exchange added 0.61 points to 1,092.58.

The TSX base metals sector, up 73 per cent during the second quarter, rose 1.7 per cent.

The financials sector lost 1.2 per cent. On Tuesday, debt rating agency DBRS said it was downgrading the preferred shares of the big six Canadian banks.

The gold sector rose one per cent as the August bullion contract in New York closed down US$10.30 to $931 an ounce. Goldcorp Inc. (TSX: G) gained 94 cents to $41.37, while Barrick Gold Corp. (TSX: ABX) rose 50 cents to $39.65.

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